2023 Backdoor Roth IRA Home Base

[GasFIRE]

Hi everyone,

I have been doing the backdoor Roth IRA for the past several years with no issues. This year I put $6500 into my Fidelity traditional IRA account (this was post-tax money transferred from my bank account), got way too busy with call, and when I went to roll into the Roth IRA a few weeks later saw it had made a little over $9 sitting in the IRA account. I rolled everything into the Roth IRA account because I don't think I can have money sitting in both the Roth IRA and traditional IRA. What should I do with this extra $9 sitting in the Roth IRA now to avoid penalties/pro-rata? The contribution was already post-tax so I don't want to trigger a tax bill on the $9 (although its so minimal it wouldn't be a big deal if it did). The articles I've read online are all for pennies sitting in the Roth so I appreciate any info on this extra $9.

Thanks in advance.

Do nothing. You’ll owe tax on the $9 earnings next year but in the big scheme of things, even if your at the highest marginal tax bracket, this is just rounding error. As you’ve already noted regarding the tax, “it’s so minimal it wouldn’t be a big deal.”

[allaboutthebones]

Thanks!

[emresidentt]

my tax guy does not seem to understand how to fill out form 8606 despite links I have sent him. under line 14, he has 6000 instead of 0. going forward, can I file my own 8606 separately from the return? since technically if a tax preparer wanted to ensure his client had 0 in his traditional, he would need form 5498. but most brokerages like vanguard do not send that out until May after the tax deadline.

if for whatever reason the return still includes the wrong filled out 8606, do I need to send a 1040x as well?

[AR]

my tax guy does not seem to understand how to fill out form 8606 despite links I have sent him. under line 14, he has 6000 instead of 0. going forward, can I file my own 8606 separately from the return? since technically if a tax preparer wanted to ensure his client had 0 in his traditional, he would need form 5498. but most brokerages like vanguard do not send that out until May after the tax deadline.

if for whatever reason the return still includes the wrong filled out 8606, do I need to send a 1040x as well?

Sounds like you need a new tax guy. Or maybe no tax guy.

This is the exact reason why I went to diy. The guy couldn't do a backdoor roth correctly.

[Larry Ragman]

my tax guy does not seem to understand how to fill out form 8606 despite links I have sent him. under line 14, he has 6000 instead of 0. going forward, can I file my own 8606 separately from the return? since technically if a tax preparer wanted to ensure his client had 0 in his traditional, he would need form 5498. but most brokerages like vanguard do not send that out until May after the tax deadline.

if for whatever reason the return still includes the wrong filled out 8606, do I need to send a 1040x as well?

Re the amended tax tax return, what you really need to know is what lines 15c and 18 say on the 8606. If they show a taxable amount (from a standard BD Roth with no prior basis), you will need to file the 1040X to reduce your taxes by the amount incorrectly reported by the 8606.

[emresidentt]

Re the amended tax tax return, what you really need to know is what lines 15c and 18 say on the 8606. If they show a taxable amount (from a standard BD Roth with no prior basis), you will need to file the 1040X to reduce your taxes by the amount incorrectly reported by the 8606.

line 15c he left blank. he didn't do part II because I'm assuming in the box under line 3 attached, he went with "no," entered the amount in line 3 in line 14 and did not do the rest of part I. he completed the return and everything else was done correctly. I did't have any taxes I had to pay on the backdoor roth. but I'm worried if him filling it out incorrectly will hurt me going forward.

if it will hurt me, can he just submit the completed return with the 8606 while I submit the updated 8606 on my own since he just doesn't get it.

[Larry Ragman]

line 15c he left blank. he didn't do part II because I'm assuming in the box under line 3 attached, he went with "no," entered the amount in line 3 in line 14 and did not do the rest of part I. he completed the return and everything else was done correctly. I did't have any taxes I had to pay on the backdoor roth. but I'm worried if him filling it out incorrectly will hurt me going forward.

if it will hurt me, can he just submit the completed return with the 8606 while I submit the updated 8606 on my own since he just doesn't get it.

Ok, just to be sure, have your 2022 taxes already been signed and filed? If no, fortunately you have a few weeks to sort this out. If yes, and you did do a backdoor Roth, then you do need to file a correct 8606 because otherwise you are reporting basis in the IRA that will be carried forward. Based on what you have said there isn’t a tax implication per se for this year, so an amended tax return is not required (well, not for this issue

But why did he conclude that you did not do a Roth conversion? Doesn’t he believe you? You could just show him the account balances I suppose. Or, if he is really being a pain, fix the 8606 when the 5498 comes out.

Yes, an 8606 can be filed separately from the tax return. You could do it. You simply file the correct version by mailing it to the same IRS center your taxes where your taxes were filed. I’d include a cover letter exposing the error. But your tax preparer really should do this for you. Among other things, that is what you are paying him for. But more practically, he has your tax records and you need them to be both consistent and correct going forward.

[emresidentt]

Ok, just to be sure, have your 2022 taxes already been signed and filed? If no, fortunately you have a few weeks to sort this out. If yes, and you did do a backdoor Roth, then you do need to file a correct 8606 because otherwise you are reporting basis in the IRA that will be carried forward. Based on what you have said there isn’t a tax implication per se for this year, so an amended tax return is not required (well, not for this issue

But why did he conclude that you did not do a Roth conversion? Doesn’t he believe you? You could just show him the account balances I suppose. Or, if he is really being a pain, fix the 8606 when the 5498 comes out.

Yes, an 8606 can be filed separately from the tax return. You could do it. You simply file the correct version by mailing it to the same IRS center your taxes where your taxes were filed. I’d include a cover letter exposing the error. But your tax preparer really should do this for you. Among other things, that is what you are paying him for. But more practically, he has your tax records and you need them to be both consistent and correct going forward.

Not filed yet but this tax guy assumes he is doing it correctly and does not feel comfortable doing something he feels is not correct (for whatever reason). I'll likely just have to fix the 8606 when the 5498 comes out. Very frustrating.

If I send the updated form, does he get a notification of this?

[Larry Ragman]

Not filed yet but this tax guy assumes he is doing it correctly and does not feel comfortable doing something he feels is not correct (for whatever reason). I'll likely just have to fix the 8606 when the 5498 comes out. Very frustrating.

If I send the updated form, does he get a notification of this?

I don’t think the IRS would notify your preparer. Since there is no short term urgency, perhaps just wait until after tax season and go see him with documentation to show the conversion. If he won’t fix it then submit the updated 8606 yourself and start looking for a new preparer.

[aundie]

Help needed. I just converted 5,500 from my traditional ira to a roth. This will be considered to be a taxable event for 2023, right? Am I able to contribute to a traditional ira for 2023 and convert before 12/31/23 or do I have to wait and convert in 2024?

[Larry Ragman]

Help needed. I just converted 5,500 from my traditional ira to a roth. This will be considered to be a taxable event for 2023, right? Am I able to contribute to a traditional ira for 2023 and convert before 12/31/23 or do I have to wait and convert in 2024?

The conversion in 2023 is a taxable event but no tax owed as long as the $5500 was contributed to the IRA after tax. But when was the $5500 contributed? If in or for the 2022 tax year you are fine. (You can contribute for the previous tax year up until April 15th.) Then you can contribute to your IRA again for 2023. There is no limit on conversions, just contributions per tax year. But do remember you want a zero balance in the IRA on 12/31/2023 to avoid pro rata distribution complications.

[jfoxcpacfp]

The conversion in 2023 is a taxable event but no tax owed as long as the $5500 was contributed to the IRA after tax. But when was the $5500 contributed? If in or for the 2022 tax year you are fine. (You can contribute for the previous tax year up until April 15th.) Then you can contribute to your IRA again for 2023. There is no limit on conversions, just contributions per tax year. But do remember you want a zero balance in the IRA on 12/31/2023 to avoid pro rata distribution complications.

You want a zero balance in the pre-tax IRA on 12/31/23 (I know that is what you meant, maybe others don’t😉). Also has until 4/18/23 to contribute this year.

[Mr. Frugal]

So here is my question related to the backdoor roth IRA... the AGI for my wife and I typically falls within the IRA phase out zone for couples who are married, filing jointly and one of the spouses is covered by a retirement plan at work ($204K-$214K). When I do our taxes with Turbotax Online (I know I should use the desktop version... next year), TT always wants to partially deduct my wife's contributions (she doesn't have a retirement plan at her work).

When I go through the "Deductions & Credits" section I get told that she could deduct $2,990 of her $6K contribution and then it asks me if I want to make her contributions deductible. It recommends that we keep the deduction, but if I do this, I end up with a taxable dollar amount in box 4b on our 1040 and of course my wife's 8606 doesn't look like all the examples of what the 8606 is supposed to look like for a backdoor.

The only way to get it to look 'correct' is to take the non-recommended route and tell TT that I want to make part of my wife's IRA contribution non-deductible and enter the whole amount it wants to deduct ($2,990). Then I get $0 in box 4b on the 1040 and all the $6K and $0 are in the right spots on the 8606... but my question is what is the right thing to do - take the partial deduction like TT wants me to do or make the whole thing non-deductible? And if I take the partial deduction, why do I get a taxable amount in 4b. None of this money should be taxable - the money's already been taxed. Thanks in advance for helping to clarify this situation for me.

[jfoxcpacfp]

Just do a prophylactic backdoor Roth. I don’t know the 1st thing about TT, but this is always my rec when a client is close enough to the phaseout to be unsure.

[aundie]

The 5,500 that I recently moved from a traditional IRA in march 2023 to an existing Roth (I have not contributed to the ROTH in several years due to my income) was against contributions that I made on an after tax basis in 2022. This traditional account has a balance of 20k in it which contributions from 2016 through 2021 in it. This was my firt time converting. Do I have to move all of the money from the traditional account to a roth now to avoid extra taxes? I intend to contribute to the existing traditional account for 2023 for the max through November and then move the money to the roth. I see responses that say I should not have a balance in the traditional.